polÍtica de riesgos-santander investor day 2011

Matías R. Inciarte Risk Division

1

Banco Santander, S.A. ("Santander") cautions that this presentation contains forward-looking statements. These forward-looking

statements are found in various places throughout this presentation and include, without limitation, statements concerning our future

business development and economic performance. While these forward-looking statements represent our judgment and future

expectations concerning the development of our business, a number of risks, uncertainties and other important factors could cause

actual developments and results to differ materially from our expectations. These factors include, but are not limited to: (1) general

market, macro-economic, governmental and regulatory trends; (2) movements in local and international securities markets, currency

exchange rates and interest rates; (3) competitive pressures; (4) technological developments; and (5) changes in the financial

position or credit worthiness of our customers, obligors and counterparties. The risk factors that we have indicated in our past and

future filings and reports, including those with the Securities and Exchange Commission of the United States of America (the “SEC”)

could adversely affect our business and financial performance. Other unknown or unpredictable factors could cause actual results to

differ materially from those in the forward-looking statements.

Forward-looking statements speak only as of the date on which they are made and are based on the knowledge, information

available and views taken on the date on which they are made; such knowledge, information and views may change at any time.

Santander does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new

information, future events or otherwise.

The information contained in this presentation is subject to, and must be read in conjunction with, all other publicly available

information, including, where relevant any fuller disclosure document published by Santander. Any person at any time acquiring

securities must do so only on the basis of such person's own judgment as to the merits or the suitability of the securities for its

purpose and only on such information as is contained in such public information having taken all such professional or other advice

as it considers necessary or appropriate in the circumstances and not in reliance on the information contained in the presentation. In

making this presentation available, Santander gives no advice and makes no recommendation to buy, sell or otherwise deal in

shares in Santander or in any other securities or investments whatsoever.

Neither this presentation nor any of the information contained therein constitutes an offer to sell or the solicitation of an offer to buy

any securities. No offering of securities shall be made in the United States except pursuant to registration under the U.S. Securities

Act of 1933, as amended, or an exemption therefrom. Nothing contained in this presentation is intended to constitute an invitation or

inducement to engage in investment activity for the purposes of the prohibition on financial promotion in the U.K. Financial Services

and Markets Act 2000.

Note: Statements as to historical performance or financial accretion are not intended to mean that future performance, share price or

future earnings (including earnings per share) for any period will necessarily match or exceed those of any prior year. Nothing in this

presentation should be construed as a profit forecast.

2

Disclaimer

3

1 Group Risk Profile

2 Credit risk

Index

4 Projections 2011 / 2013

3 Market risk

4


Credit risk

Index

Projections 2011 / 2013

Market risk

2

3

4

Santander Risk Function

Risk function independent of the business activity

Strong involvement of Senior Management

Solid decision making process

Risk control and management integrated via corporate structure with global scope

SANTANDER RISK MODEL

management principles

5

Integrated risk

framework

Flexibility

Solid balance sheet

(capital, liquidity)

Prudent risk

management

Diversification

with critical mass

Customer

focused

Key components of Santander’s business model

5

Risk Appetite

Risk Appetite aligned with strategic Solvency objectives: Group Rating and Core Capital Ratio

Risk profile: medium-low and predictable

Risk Appetite aligned with strategic solvency objectives

Market

Risk

Client driven activities in markets and no held-to-maturity portfolios

No complex products.

Average VaR

2007-11 < USD 40 MM

Credit

Risk

Operational risk

Compliance and reputational risk Other Risk

Discipline: kept within our core markets and customer base

Appetite is quantified in Credit Budget: Retail Banking: strict policies and advanced credit models

SMEs: diversified risk (customer and segment)

GBM: strict concentration limits (25% of Legal Lending Limit)

Continuous Stress Test analysis for adequate level of provisions to

cover expected losses

Continuos monitoring and

low tolerance

6

7

Risk structure

Balance sheet

A transparent and simple balance sheet …

EUR Million June 11

Cash and deposits on central banks 90,003

Trading portfolio 95,806

Other financial assets at fair value 30,986

Available for sale financial assets 90,476

Loans 764,588

Intangible assets, property equipment and goodwill 44,092

Others 47,462

TOTAL ASSETS 1,163,413

(*)

(*)

(*) Including derivatives as a net figure 7

8

Risk structure

… Credit risk: our core

business

… Market risk: low

complexity activity and

customer driven

Economic capital allocation by Risk Type

… reflects our business model and risk appetite

Jun11

Market 11% Credit

68%

Fixed Assets

2%

Operational

10%

ALM

9%

Trading

1% Structural FX

5%

Non-trading

5%

8

9


Credit risk

– By sectors and products

Index


Market risk

2

3

4

Credit Risk

10

By segments and products

Cash

Trading

Available for sale

Loans

Intangible & equipment Others

Other Fair value

Mortgages

41%

Consumer

lending

16%

Credit cards

3%

SMEs

23%

GBM

9%

Real estate

8%

Diversified credit structure reflects Santander's retail focus

EUR billion

47.5 44.1

764.6

90.5

31.0

95.8

90.0

10 Gross customer loans amounts to EUR 744 Mn.

Assets % NPL LTV Comments

182,855 1.44% 2.51% /

0.04% 52.1%

Mainly a retail prime lender; does not

originate second mortgages

59,292 2.4% 2.75% /

0.57% 51.4%

Mainly first residence; low expected

loss

16,517 2.7% 1.96% /

0.18% 55.5%

Actions taken in underwriting:

override rate reduction, production

with a LTV < 80%...

12,534 3.5% 1.83% /

0.25% 64.8%

Focused on residential mortgages

(64% of the portfolio) and home

equity

SCF Germany represents 2.2% of total mortgages / Chile 2% / Mexico 1.1%

Mortgages

Spain

Portugal

Others

USA

UK

11

Low risk profile in all geographies

PD/EL

Total 303,825 2.2% 2.45% /

0.15%

EUR Mn

11

Consumer Lending

Assets % NPL Credit cost

Spread Comments

22,365 5.0% 2.4% /

0.96% 1.6% 6.0%

Specialized

consumer lending

Focused on auto

financing

11,084 3.9% 21.1% /

8,3% 5.0% 19,9%

22,325 5.5% 4.9% /

1.9% 1.9% 5.5%

27,970 9.4% 14.3% /

6.8% 8.2% 19.1%

Balanced mix

(nearly 50% auto

financing and 18%

payroll loans) with

wide spreads

24,372 6.5% 5.1% /

2.4% 2.9% 4.4%

Strict admission

process criteria

UK represents 5% of total consumer lending / Chile 2% / Mexico 1%

SC Germany

Brazil

Spain

Others

12 (*) 13% Italy, 11% Nordics, 5% UK

SC USA

SC USA SC Others (*)

Profitable segment adjusted by risk with high recovery capabilities

PD/EL

Total 119,755 6.1% 7.8% /

4.0%

EUR Mn

12

UK

SMEs (excl. Real Estate)

Assets % NPL Customers*

Comments

Spain 84,207 4.1% 2.5 % / 1.1 %

251,803 High diversification across all

industry sectors

23,715 7.1% 10.3 % /

5.1 % 528,168

Performance is in line with the

industry standard given the weight

of the small companies (48%)

12,472 3.1% 2.4 % / 0.9 %

65,415

Conservative risk profile focused on

high quality customers with run-off

portfolios being actively managed

7,203 4.2% 3.3 % / 1.5 %

42,154

Improving performance of core

segments due to strict credit

policies in line with the Group’s

standards

Chile represents 5% of total SMEs’ assets / Mexico 3%

Brazil

Others

13 * Number of Customers includes Real Estate

USA

Well diversified portfolio mainly to finance SMEs’ working capital

PD/EL

Total 168,864 4.1% 3.8 %

/1.7 %

EUR Mn

13

GBM

REC* % NPL Corporates Comments

Total Group

122,247

0.52%

0.65 % / 0.29 %

759

Exposure accounts for 34% of total

Group’s portfolio. Strict lending

limits are applied to avoid

concentration

14 • REC: credit risk exposure (maximum EAD, including associated

derivatives exposures (EUR 11,800 mn as of 30.06.11)

Well diversified portfolio built on deep customer relationships

PD/EL EUR Mn

93.9% of exposure* is investment grade (32.0% with rating >A-)

0

5,000

10,000

15,000

20,000

25,000

AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ C N/R

14

Real Estate

Assets % NPL % Cover. Comments

UK 18,427 5.4% 1.2 % / 0.12 %

35.5% Low risk profile with € 7.7 Bn of

Social Housing assets with zero

NPLs

11,069 5.4% 11.8 % /

4.0 % 83.0%

Good credit quality portfolio with

43% of multifamily (3.2% of

NPLs) and 12% in run-off mode ,

actively pursued

25,347 21% 16.5 % /

5.5 % 30.8%

Low Real Estate exposure over

total loans, Spain (11%) and total

Group (3%)

Portugal represents 4% of total assets / Latam Ex-Brazil 2% / Brazil 2%

Sovereign

Spain

Others

Low Group exposure and ring-fenced risks in countries under pressure (i.e. Spain)

PD/EL

Total 59,613 12% 11.0 % /

3.1 %

EUR Mn

15

16


Credit risk

– By geographies

Index


Market risk

2

3

4

47.5 44.1

764.6

90.5

31.0

95.8

90.0

Credit Risk

17

By geographic area

Geographic distribution reflects our core markets activity

Others

11%

Spain

31%

Sov.

5%

Brazil

10%

UK

31%

Portugal

4%

Latam ex-

Brazil

8%

Cash

Trading

Available for sale

Loans


Other Fair value

EUR billion

17 Gross customer loans amounts to EUR 744 Mn.

3.4 4.2

4.6 4.8

2.5 2.2

2.4 2,4

2.4 3.1 3.3 3.4

11.1

17.0 18.9

21.3

Dec'09 Dec'10 Mar'11 Jun'11

Dec'09 Dec'10 Mar'11 Jun'11

31 27 26 25

84 84 83 84

34 34 32 33

31 30 28 28

64 61

60 59

Spain: Credit Risk

(1) NPL ratio calculated over consolidated balances, excluding intragroup

Real Estate

Total portfolio Spain

Other portfolio

Household mortgages

% EUR billion

245 236

230

SMEs

Real estate

Household mortgages

GBM

Other loans to individuals

TOTAL 229

18

- - - -12% -4% -3%

Deleveraging process with NPL ratios stabilising, except in the real estate segment

Loans NPL ratio

Spain’s mortgages. Differential characteristics

Strict admission policies

Jun´11

Concentration in low LTV tranches show high credit quality

Jun´11

Average LTV:

51.4%

Average Afford. rate:

28.8%

Spain: Mortgages

>100%

50%-80%

80%-100%

50%<

30%<

>40%

30%-40%

Low risk portfolio with very limited expectations of additional worsening

59,292 2.4% 2.75% / 0.57%

Assets % NPL PD/EL EUR Mn

19

All mortgages pay principal since the first day.

Furthermore, early amortisation is a usual practice: the average life of the loan on contract is 23/24 years, while the actual term decreases

to 13/14 years on average.

A very high percentage of mortgage loans are to finance first residence. Given that the borrower has home ownership, the expected loss is very low.

All borrower assets are subject to recourse, not just the property.

Most mortgages are at variable rate with fixed spread over Euribor.

Food, Beverages and Tobacco

Retail

Construction

Civil Works

Hotels & food services

Educational, health &social work

Manufacturing Administrative

Services

Social services

Prod. & Distrib. & Utilities

Insurances

Transports & Communications

Others w. exposition < 2%

Spain: SMEs

Large number of customers with no significant concentration: 251,803 customers with an average exposure of € 0.33 MM

Good credit quality with adequate rating distribution: appropriate to the current

economic environment

Diversified exposure across all industry segments: Assets distributed in more than 21 sectors. Maximum in retail (14%)

Firms impacted by the macro environment but already adjusted after three years of recession

84,207 4.1% 2.47%/ 1.1%

% NPL PD/EL Assets

EUR billion

9%

5%

14%

7%

6%

5%

4%

11% 4%

8%

6%

17%

Goverment excluded 20

4%

0

10

20

30

40

Dec-09 Dec-10 Mar-11 Jun-11 2011e 2012e 2013e

31 25

19

Spain: Real Estate

EUR billion

Real Estate Loans

Loans

-19% NPLs 5,399 1,659 31

Substandard 4,013 467 12

Generic 333

Total 9,412 2,459 26

Amount Amount %

Risk Coverage EUR million

Very limited risk as a percentage of total group loans and subject to an intensive reduction process

Coverage. June 2011

100% of substandard and 50% of NPLs are performing

Weight evolution

Spain 13% 11%

Total Group 4.4% 3.4%

Dec’09 Jun’11

-25%

21

NPL

Substandard

Normal

Expected Losses Stress Scenario 2

(PD* 27%, LGD 40%)

Additional

Loss to year-

end 2013

Additional

Loss to year-

end 2013

Reserves + provisions expected (30 months) (PD* 19%, LGD 31%)

Expected Losses Stress Scenario 1

(PD* 25%, LGD 35%)

Additional losses well under last annualised quarter’s net operating income after provisions in Spain (EUR 2,536 Mn)

EUR Mn

Scenario 1 2012GDP: -1% 2013GDP:0,8% / 2011additional housing price: -10% 2012 additional housing price: -2%;

Scenario 2 2012GDP: -1% 2013GDP:0,8% / 2011additional housing price: -15% 2012 additional housing price: -5%;

(*) First year PDs

SPAIN: REAL ESTATE (to year-end 2013)

15,935

4,013

5,399

4,325 5,007

593

5,895

1,570

22

CURRENT STRESS-TEST

Spain: Real Estate Assets* (Foreclosed)

EUR billion

Balances

EUR million

Active management in the early stages of the downturn. Prudent and anticipated coverage policy

Breakdown. June 2011

Reserves cover average losses in

actual recent sales

(*) Includes acquisitions to developers and foreclosed from mortgage customers

(**) Source: Morgan Stanley & Fitch April 2011

Gross

Coverage

Net

Finished buildings 3,314 25% 820 2,493

Buildings under constr. 700 25% 172 528

Developed land 2,979 38% 1,118 1,861

Building land 992 42% 412 580

Other land 350 42% 147 203

Total 8,335 32% 2,669 5,665

Gross Net Amount Coverage Provisions Amount

Assuming an additional decrease

between 10-15%** of current prices,

additional losses estimated:

566 – 850 EUR million

2009 2010 June 2011

4.5 5.2 5.6

2.0 2.3

2.7 6.5

7.5 8.3

23

Brazil: Balanced mix, with retail focus …

(1) Specialized unit for consumer lending (auto loans) (2) Exchange rate as of 30.06.11 (3) Individuals and companies with sales less than BRL 250

million (Santander and Peer 2) or than 150 million (Peer 1) over total portfolio (including sureties and guarantees)

24

Consumer

lending

GBM

SME

Other loans to

individuals

Santander

Financiamentos1

Total = BRL 175,439 mn

(EUR 77,624 mn)2

%

% Retail3

Santander Peer 1 Peer 2

67% 65%

61%

Brazil: … and prudent and steady growth

… with slight upturn of

deliquency rates… … but within comfortable

parameters

Inflation control policies

impacted greater on

individuals, and

consequently on banks

with retail profiles

In any case deliquency

rates continue at

moderate levels and are

backed by ample

spreads

Spread – cost of credit (Santander) Delinquency (Over 90, Santander)

Prudent growth…

Growth in line with

Brazilian economy,

maintaining prudent

approach on credit

% Credit Assets Growth Dec 2010 / Dec 2009

Source: IMF, Banco Central do Brasil

25

5.01%

6.18% 6.53%

5.87%

5.38% 4.69%

4.15%

3.85% 4.01%

4.30%

7.1%

7.0% 6.8%

6.4% 6.3% 6.1%

6.4%

6.6%

6.9%

6.8%

Santander NominalGDP

FinancialSystem

15.7 15.4

20.6

Portugal: Sovereign Crisis Complex macro environment in 2011 and 2012

Moderate impact due to the quality of the portfolio (mostly mortgages to medium-high income individuals)

Low weight within the Group.

26

Mortgages

56.4%

Consumer

Lending

4.6%

Credit Cards

2.8%

SME

30.7%

GBM

1.5%

Real Estate

4.0% Credit portfolio: 29,266 EUR mn

Sovereign debt: 1,600 EUR mn

4% of the Group total loans

Coverage ratio Jun’11 = 61.52%

NPL Ratio

1.53%

2.13%

2.40% 3.25%

Jun-08 Jun-09 Jun-10 Jun-11

First residence: 92%

Second residence

and others: 8% 93%

Mortgages

NPL ratio: 2.65%

Average LTV: 55.5%

27


Credit risk

– Credit quality ratios

Index


Market risk

2

3

4

28

NPL ratios

2.04

2.49

2.82 3.03

3.24 3.34 3.37

3.42 3.55 3.61

3.78

0

0.5

1

1.5

2

2.5

3

3.5

4

Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10 Dec 10 Mar 11 Jun 11

%

Group ratio shows diversification effect that softens the crisis impact

Group

28

Banco Santander compares well to peers in our core markets

29

NPL ratios

Local criteria data on a homogeneous basis according to the sector source

Spain

0.64 1.95

3.41

4.24 4.81

0.92

3.37

5.08

5.81 6.69

Dec'07 Dec'08 Dec'09 Dec'10 Jun'11

Brazil

UK

Latam ex-Brazil

Source: Bank of Spain Source: Council Mortgage Lenders

Source: Central Banks Source: Banco Central do Brasil; Tasa >90

1.60 2.00

2.70 2.60 2.60

2.20

3.00

4.50

3.50 3.40


0.69 0.93

1.37 1.29 1.36

1.10

1.88

2.38 2.11 2.07


2.9

3.4

5.9

3.9 4.3

3.2

3.2

4.3

3.2

3.4

3.5 3.8

5.4

4.0 4.4


Private banks

Santander

System

29

30

Cost of Credit (Specific provisions)

Cost of credit remains stable

1.15%

1.57% 1.56% 1.49%

Dec-08 Dec-09 Dec-10 Jun-11

30

31

Cost of Credit (Specific provisions)

Notes: Latam ex-Brazil: includes Argentina, Chile, Colombia, Mexico, Puerto Rico and Uruguay

Latam ex-Brazil

Spain

Brazil

UK

0.77%

1.21%

1.56% 1.45%


0.25%

0.45% 0.43% 0.36%


4.30%

5.88%

4.93% 4.99%


2.88% 3.21%

2.03%

1.51%


31

32


Credit risk

Index


Market risk

2

3

4

Market Risk

33

Low complexity activity

Cash

Trading

Available for sale

Loans


Other Fair value

Trading activity

Other fair value

EUR billion

37%: deposits at credit institutions due to Repo activity in GBM

26%: assets from unit-linked insurance plans; risk held by

policyholders

Cont. Europe

19%

Other: 1%

Corp. Act.

5%

Mexico

15%

UK

42%

Brazil

18%

Equity

9%

Interbank Deposits

18%

Debt Securities

72%

Other

1%

47.5 44.1

764.6

90.5

31.0

95.8

90.0

33

Market Risk Appetite

Qualitative drivers •Low complexity

•Focused on Corporate Clients

•Flow Products

•Low market Risk profile

•Avoiding complex structured products

Quantitative drivers •Trading limits as a percentage of the budget

Trading Risk

Average Daily VaR (€ mill.)

2007 2008 2009 2010 2011

29 40 30 29 25

Structural Risk

Qualitative drivers •Positions mainly consist of sovereign local

bonds in AFS portfolios

•No held-to-maturity portfolios

Quantitative drivers •NIM sensitivity as a ratio of interest margin of the

Group, Market Value of Equity sensitivity vs. Equity

NIM sensitivity lower than 2% of the Group’s NIM and MVE sensitivity lower than 1.5% of total equity

34

VaR, 99%, 1d Monthly P&L

-75

0

75

150

225

300

375

450

Ene-04 Ene-05 Ene-06 Ene-07 Ene-08 Ene-09 Ene-10 Ene-11

-20

0

20

40

60

80

100

120

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11

Trading supports a client driven business: recurrent revenues The average VaR in June was € 28 million

35


Credit risk

Index


Market risk

4

2

3

36

Cost of Credit Forecasts (Specific provisions)

1.15%

1.57% 1.56% 1.41%

Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13

Foreseeing stable Cost of Credit in the coming years

36

2.88% 3.21%

2.03%

1.45%


4.30%

5.88%

4.93% 4.98%


0.25% 0.45% 0.43%

0.30%


37

Cost of Credit Forecasts (Specific provisions)

Notes: Latam ex-Brazil: includes Argentina, Chile, Colombia, Mexico, Puerto Rico and Uruguay

Spain UK

Brazil Latam ex-Brazil

0.77%

1.21%

1.56%

1.27%


37

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

2.10%

2.30%

2.50%

2.70%

2.90%

2008 2009 2010 2011e 2012e 2013e

Cost of credit (specific)

38

Stable forward looking cost of credit– Spain

EUR Bn

4.3

2.2

1.3

3.3 3.2

2.4

Specific provisions vs accounting provisions

3.4

1.3 2.2 2.4 3.2 2.4

Accounting

Generic

Specific

Cost of credit

(specific) 13.2

Increase of asset volumes

Risk Premium decrease in most portfolios

Readjustment of generic provision

…will lead to a stable cost of credit in the following years

0.50%

0.70%

0.90%

1.10%

1.30%

1.50%

1.70%

1.90%

2.10%

2.30%

2.50%

2.70%

2.90%

2008 2009 2010 2011e 2012e 2013e

Cost of credit (specific)

Stable forward looking cost of credit– Total Group

EUR Bn

12.3

7.7

6.6

11.5

12.7 13.6

11.8

9.5 10.3 10.7 13.2 14.1 Accounting

Specific

Generic

Cost of credit

(specific)

39

40

Conclusions

A focused retail banking strategy outperforming our peers throughout

the crisis

Independent Risk Management and Control

Well diversified portfolio

Limited exposure to Spanish Real Estate (3% of total loans portfolio)

Limited exposure to sovereign debt

Expected normalization of cost of credit and provisions in Spain after

2012

Stable cost of credit, well under control in all markets

40

polÍtica de riesgos-santander investor day 2011

Economy & Finance

risk factors

risk appetite risk appetite

diversified risk customer

forwardlooking statements

process risk control

segment risk gbm

risk structurea transparent

santander cautions